We model the behavior of Nasdaq momentum traders, also known as SOES bandits. We show, all things being equal, that the profitability of SOES bandits decreases in the bid-ask spread, but increases in the effective tick size. The patterns we observe in the data provide support for the model. We then discuss the plausibility of odd-eighth tick avoidance by market makers as a defense against SOES bandits.

We show harmonizing domestic GAAP with foreign GAAP can have deleterious effects on security market performance, specifically price informativeness and trading volume. Harmonization effects result from interaction between two forces. Direct informational effects depend on whether harmonization increases or decreases GAAP precision. Expertise acquisition effects depend on benefits and costs to foreign investors of becoming domestic GAAP experts. These countervailing forces can result in harmonization to more (less) precise GAAP increasing (decreasing) or, unexpectedly, decreasing (increasing) price informativeness and trading volume. We also observe this for a cost of capital metric. Thus, harmonization is not necessarily a desirable singular goal.

We find, as predicted, that upward revaluations of fixed assets by UK firms are significantly positively related to changes in future performance, measured by operating income and cash from operations, indicating revaluations reflect asset value changes. Current year revaluations (revaluation balances) also are significantly positively related to annual returns (prices). Relations between revaluations and future performance and prices are weaker for higher debt-to-equity ratio firms, indicating motivation affects how revaluations reflect asset value changes. The relations also are weaker for cross-listed firms and in a more volatile economic time period. Our inferences are robust to controlling for firms' acquisition activity.

The frequency and magnitude of restructuring charges have drawn the attention of various groups of users of accounting information. Prior studies on restructuring charges have focused on the market's response to the announcement of the charge. In contrast, we examine the charges from the perspective of financial analysts. We provide evidence that analysts expect declining performance for restructuring firms in the short run but possible improvement over the longer term. When we examine forecast errors in the year following the charge, we find evidence that the analysts’ accuracy has declined and, despite the downward revision, analysts are still optimistically biased.

If economic growth relies upon the extent-of-the-market, then openness will decrease the connection between initial income and later growth. Alternatively, learning-by-doing models suggest that wealth will be more positively correlated with growth in open economies, because trade causes advanced economies to specialize in products with more opportunities for learning. We examine twentieth century less developed countries and nineteenth century U. S. states. In both data sets, there is a much stronger correlation between growth and initial wealth among closed economies. These findings support the importance of the extent-of-the-market, and aggregate demand in fostering growth.

This study examines the predictive value of Management Discussion and Analysis (MD&A) information. More specifically, this study tests the association between properties of analysts' earnings forecasts and MD&A quality, where MD&A quality is measured by the Securities Exchange Commission (SEC). We find that high MD&A ratings are associated with less error and less dispersion in analysts' earnings forecasts after controlling for many other expected influences on analysts' forecasts. We also find that estimated regression coefficients are consistent with MD&A information having a substantial effect on earnings forecasts. Finally, we find our results are driven by forward‐looking disclosures about capital expenditures and operations, and also by historical disclosures about capital expenditures. These findings are consistent with the suggestion by many constituencies (including the SEC) that the type of information found in high quality MD&A is particularly relevant for predicting earnings.

The evaluation of numerous school reforms requires an understanding of the value of better schools. Given the difficulty of calculating the relationship between school quality and student outcomes, I turn to another method and use house prices to infer the value parents place on school quality. I look within school districts at houses located on attendance district boundaries; houses then differ only by the elementary school the child attends. I thereby effectively remove the variation in neighborhoods, taxes, and school spending. I find that parents are willing to pay 2.5 percent more for a 5 percent increase in test scores. This finding is robust to a number of sensitivity checks.

Under Ralston Purina Company's 1986 incentive contract 14 managers would receive 49.1 million in stock if within ten years the stock price closed above 100 for ten consecutive days. While the contract required a 57.8% increase in stock price, it did not motivate managers to create value because the rate of return required to reach 100 in ten years was substantially less than Ralston's cost of equity capital at the time of the contract's adoption. Barring any action by managers that would substantially change the market's expectations about the firm, reaching the 100 hurdle price would be easy. In fact, managers collected the contract's payoffs within five years despite an industry-adjusted loss of $2.1 billion in shareholder value.

Earnings Patterns, Increasing Earnings, Valuation